Which of the following statements is FALSE? For valuation purposes, the trailing P/E ratio is generally preferred, since it is based on actual not expected earnings. Trailing earnings are the earnings over the previous 12 months. Forward earnings are the expected earnings over the coming 12 months. We can estimate the value of a firm's shares by multiplying its current earnings per share by the average P/E ratio of comparable firms.

Question

Business

Francis Pruitt

20 August, 05:45

Which of the following statements is FALSE? For valuation purposes, the trailing P/E ratio is generally preferred, since it is based on actual not expected earnings. Trailing earnings are the earnings over the previous 12 months. Forward earnings are the expected earnings over the coming 12 months. We can estimate the value of a firm's shares by multiplying its current earnings per share by the average P/E ratio of comparable firms.

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Hannah Frederick · Answer 1

The statement that is false here is A) trailing P/E ratio are used for valuation because it is based on actual not expected earnings.

Explanation:

For the valuation purposes, the most preferred P/E ratio is forward P/E ratio, not the trailing P/E ratio because here we are more concerned about future earnings not the current. These forwards earnings are the earnings which are expected over the coming year or 12 months of time.